Question

chase bank Obtain the annual report for the year 2019 for the bank you chose /obtained Using mainly the annual report and other sources if needed answer the following questions : 1.Name the External Audit firm auditing the Bank, What is the responsibility of the audit firm? What are the forms of audit opinions? What is the opinion of the auditors auditing your Bank? 2.What is equity capital?Compare equity capital of your BANK with peer group. How do you see the level of your BANK capitalization? 3.Why should banks be concerned about their level of profitability and exposure to risk? Compare your BANK profitability with peer group mainly Return on Assets and Return on Equity? How do you see the level of your Bank profitability compared to its peer group? 4.What are primary reserves and secondary reserves and what are they supposed to do? 5.What is meant by OFF-BALANCE sheet? What is the total $ amount of your Bank off-balance sheet items? Above questions are to be answered and forewarded pdf by due date. You should attach the balance sheet and the income statement as well as the auditors report which are available in the annual report of your BANK. GOOD LUCK We will discuss in meetings and clarify,answer any questions you may have.

Answer 1

The bank I have chosen is Citi Bank for the reason that I am not sure whether I can attach a pdf of the financial statements so I shall just share the link and it would be easier for you to download the same.

1. The auditor of Citi Bank is KPMG LLP and they have served as the auditor of the group since 1969. The responsibility of the external auditing firm is to express an opinion on as to whether the financial statements as a whole show a true and fair picture and whether or not they are free from any material misstatements caused due to either fraud or error.

There are four types of audit opinion that can be expressed by an auditor. They are as follows -

Unqualified Opinion	A Clean Report
Qualified Opinion	Subject to certain issues, the report is OK
Adverse Opinion	Too many issues in the finanical statement
DIsclaimer Opinion	Unable to express an opinion.

The opinion expressed by KPMG LLP on the financial statements of Citi Group is of an unqualified opinion.

2. In simple words equity is ownership of assets that may have liabilities attached to it. It is also known as net assets. However in banking, equity capital has a completely different meaning assigned to it. In banking, since banks raise funds by way of deposits, the term equity gets a different preference. Here, equity capital acts as a buffer or liquidity that is available in case of a mishap or unfortunate event. It acts like the backbone of the banking system by ensuring that due to a single event the entire bank does not get washed off and is capable of holding its ground.

As compared to other top banks in the US, Citi had a great percent of equity capital of almost 11.22% as compared to Bank of America's 10.77% or Wells Fargo & Company's 10.67%. So yes it does have sufficient capital.

3. If not managed well, risks can have a great impact on the working and profitability of the banks. There are studies that do show that the higher the risk taken by a bank with larger capitalization and higher number of assets, the more higher the profitability goes. However, the key is larger capitalization with an effecient risk management procedure in place.

Citi group has a ROA of 0.87% as compared with Bank of America's 1.16% and Well's Fargo's 1.14%.

4. A bank's primary reserves consist of cash on hand and deposits owed to it by other banks. These primary reserves are usually kept available for meeting its day to day requirements of expenses and customers cash withdrawals etc. On the other hand secondary reserves are those amounts that are invested in short term marketable securities, that help the bank to earn something over idle funds.

5. For banks, off balance sheet items are those items that may expose the bank to a certain type of risk say credit or liquidity risk however these are not reflected in the balance sheet presented by the bank because of the nature of contingency in them.

The amount of OFF BALANCE SHEET items for citi bank as on year ended 31st dec 2019 stands at $12,802 m.

The link of the annual report of Citi Group for FY 2019 is - https://www.citigroup.com/citi/investor/quarterly/2020/ar19_en.pdf

I hope the above solution is what you were looking for. For any further queries or doubts in the solution, please feel free to drop a comment. Please do leave a positive feedback, Thank you :)